VIPS - Vipshop Holdings

[WneverLOSE]

Since every major newspaper keeps reporting about oil and china, I find it interesting to look at these areas for bargains.

 

I must admit I have never looked at a chinese company and I have very limited knowledge about accounting and general business practices there.

 

here is the link to their investor presentation : http://media.corporate-ir.net/media_files/IROL/25/250900/VIPS%203Q15%20Post%20Earnings%20Presentation%20November%202015.pdf

 

It does look like they can build some kind of two sided network effect, as they grow larger more people come to there site, and the more people come to shop at vip.com more brands will use their services in order to sell excess goods.

 

I believe the company can raise it net margin as they grow but I model my earnings at 6% net margin.

by my calculation at 12 bucks per ADR you pay 21 P/E.

 

The major problem with this speculation is the share dilution, since 2011 shares outstanding more than doubled.

 

This company has been clearly misunderstood since it IPO'd in 2013 at 0.44 USD it's stock price rocketed to 30 USD in the middle of 2015 for a CAGR of ~300%

 

Have any of you looked at this company and have any thoughts ?

(P.S if there are any grammar mistakes please point them out and I will fix them since english isn't my native language)

 

 

[Guest Grey512]

It's been implied their accounting and financials are not to be trusted.

To top that off - if (when?) the Yuan devalues, this stock will get crushed due to the double-whammy of market psychology and decreasing household purchasing power.

 

Curious about your thoughts on their numbers. I've had a tiny position but sold it when I begun to doubt the numbers and decided to pare down my Yuan deval exposure.

[JBTC]

If you have never looked at Chinese companies before, I am not sure this is the best place to start.

 

Chinese companies as a whole are famous for providing perhaps the most landmines in the world. Of course some of them have worked out well, but out of a huge base.

 

Frankly the odds are not that great for investors new to that market.

 

 

[WneverLOSE]

After looking at it for a few more days it is definitely going into the too hard pile,

what I did like :

The company has a nice business of selling mostly apparel and some cosmetics to mostly above average income woman, they sell it using "flash" sales which they buy all the merchandise up front and sell it at a large discount in a short amount of time. Their business will do great on mobile and getting that app space on the phone is very valuable to any retailer, users will buy most of the stuff using their iphones when they are at work or on the way. They can have better margin than any other discount player just by having larger size.

The product mix is much better than other competitors such as jd.com and tmall.com which also sell electronics and other consumer goods.

this product mix allows them to earn better margins and to grow faster in that niche.

since apparel is harder to master then selling phones their ability to understand what will sell and what won't is another small competitive advantage until the big boys will hire the right fashion people.

 

why I cannot invest :

I don't know enough about the competition and other private companies that may squash them in their niche, I don't see why jd.com or tmall.com can't in a few years introduce the same concept in there own brand (they already have the scale to purchase with big discounts).

 

Paying 20 times adjusted income is a lot for me and I can't see how they can monetize their users significantly better , discount of product will go up as they grow, they will adjust their site to be more intuitive and users will view more pages (ARPU will go up) but still the big bet here is on growth, so if you buy this stock you really have to trust that they can keep growing, although if china can keep growing at 7% in the next 10 years they will have a "no organic growth" sales of 13B, assuming 5% net income margin and a 10 P/E gets you at 6.5B market cap (almost the same as today assuming no share dilution), so if management is rational it kind of hard to see how you can lose money (not taking into account inflation). What I think that will probably happen is that they will still grow at a slower but decent pace (but it may not reach the shareholders if they get diluted on the way there).

I think that if you know the management is good and understand capital allocation it may be "easy" money.

I keep getting tempted but I remind myself I don't understand it nearly enough and probably most people can't.

[Guest notorious546]

what has been the cause for dilution

[LightWhale]

Tencent and JD.com Investing in VIPS at a price equivalent to 13.08 USD a share, a 55% premium:

https://www.bloomberg.com/news/articles/2017-12-18/tencent-jd-to-invest-863-million-in-online-retailer-vipshop

[ccplz]

Anyone have a view on VIPS now that it is trading significantly below where JD / Tencent went in?

[Spekulatius]

I do agree that thr chinese market has some bargains, but nit sure that  Vipshop isbth best way I express this idea. I own a little bit of YY, but anlow risk idea is to by CHL - the largest telecom company in China, with vast wireless exposure. It’s run like an utility, pays a dividend, has a great balance sheet with next cash and is unlikely subject fraud, due to the government having quasi contro over it (hence I assign it as an utility). Sanctions would have very little impact on it’s business.

[ccplz]

I do agree that thr chinese market has some bargains, but nit sure that  Vipshop isbth best way I express this idea. I own a little bit of YY, but anlow risk idea is to by CHL - the largest telecom company in China, with vast wireless exposure. It’s run like an utility, pays a dividend, has a great balance sheet with next cash and is unlikely subject fraud, due to the government having quasi contro over it (hence I assign it as an utility). Sanctions would have very little impact on it’s business.

 

This post has almost nothing to do with VIPS

[LightWhale]

The stock is deeply discounted:

- Normalised earning multiple is around X15 p/e, despite 20-30% revenue growth. That's a growth stock with a value price tag.

- Founder owner operator, little turnover in key management, which holds ~20% of the company.

- Consistent and reliable in their vision and projections

- benefits from the JD/Tencent partnership should not only grow revenue but also expand margins, since CAC will fall significantly. Plus VIPS has been popular with tier 2&3 female customers whereas the JD platform attracts more men living in tier 1, so newly targeted segments are not only wider but also complementary.

- No apparent B/R risk - company is flush with cash

- downside protection - JD and Tencent are allowed to buy additional 7.5% of the company within a year and a half. In fact, JD has bought in the open market during the last quarter.

- A spin-off of the financing division, which is worryingly non-transparent, should take place in the coming year.

 

To be fair - I hold shares of the company as of last week. 

 

[randallchsu]

I don't know anyone using VIPS in my small circle of friends in Shenzhen, so I have no experience with VIPS and thus cannot provide any useful comment.

 

Just for discussion, I think it would be more interesting to look behind the numbers and understand how customers choose a particular platform to complete purchase.

 

If we are just talking about online buying for woman's apparel, it's common for a woman to search on Taobao for a brand's dress that she tried in store. The dress is usually in season and on store display without promotion. She'll find multiple listings selling the exact dress simply by searching the product id number shown on the price tag. Sellers will provide a variety of explanations for the significant discount for the dress (60-70% off of physical retail).  Most of the time, the listings she is looking at already got dozens of buyer feedback, so she can quickly choose which seller to buy from. The seller will offer full refund with no question asked within a week of receiving the dress. If she decided to return, her out of pocket expense is probably 8 to 15 rmb.

 

The ecosystem that Taobao established for this buying behaviour prohibits others to gain a significant online volume. As more buyers are seduced by the discount for using the Taobao/Tmall platform, the increase in buyer traffic also encourages the brands to be selling on the platform to gain more eyeball exposure. And in return, the buyers get an increasingly dynamic platform, and the music keeps going.

[plato1976]

only 3.6B now

 

I think it's a very attractive acquisition target at this price